Rolls trading through fail is seen as an indication of the growing supply/demand imbalance in the mortgage market, said analysts from JPMorgan Securities in a recent report. They said that currently most rolls are trading near 0% implied financing.

In fact, there are even a few peculiar exceptions stubbornly trading at negative financing. For instance, analysts said that the Dwarf 5 roll traded about a quarter tick through fail over the last two months and is currently trading at 12.5/32s for January/February, which is almost a plus through fail. This is in direct contrast to the zero-percent implied financing for the FNMA 5.5 roll, they said, which looks paltry. This roll is already at fail for February/March.

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